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Price Responsiveness of Demand in Energy

This project explored the influence of price on people’s decision-making in relation to three specific energy-related behaviours in household energy consumption. It used data from the English Housing Survey to explore the factors most associated with the presence of key energy efficiency measures (loft insulation, cavity wall insulation and double glazing) in residential properties. These are recognised as cost-efficient measures which should both save households money and reduce carbon emissions, and installing them is seen as a key part of any strategy to help meet national carbon budget targets. Despite the fact that these measures pay back quickly, however, policy initiatives have not always succeeded in persuading households to install them. Understanding which households are more or less likely to have these measures could inform policy makers about potential market failures which could help to target interventions more effectively.

The study used an econometric modelling methodology drawing on data from the English Housing Survey between 2002 to 2010 to elicit the most important factors influencing the uptake of energy efficiency. Several key findings emerged from the study.

In the first place, it emerged that low income does not appear to reduce the likelihood of having efficiency measures. This suggests only a limited role for credit constraints as a barrier to take-up, perhaps reflecting policies which had previously given away or heavily subsidised measures for poorer households.

Not surprisingly, it transpires that private renters are significantly less likely to own efficiency measures than other tenure types, suggesting that failures in the landlord-tenant relationship in the private-rented sector are a key barrier to uptake. While the landlord is responsible for building infrastructure and access to capital, he or she has no incentive to make cost savings from fuel consumption, as this is paid for by tenants. Tenants on the other hand have less incentive to invest in structural measures and often lower access to capital. Conversely, it emerges from the data that social renters are more likely to have measures installed. This probably reflects previous policy measures which focused on social housing as a target for improved efficiency and created incentives for social landlords to improve the energy efficiency of social housing.

Owner-occupiers who have been in their home for some time appear to be less likely to have loft insulation than recent movers. This could reflect increased hassle costs of installing loft insulation for those with a longer duration of tenure. Older properties are much less likely to have measures installed than newer properties, reflecting changes in building regulations and the costs of insulating older dwellings.

The main policy conclusions are that targeting the private rental sector and, as far as possible, older homes, flats and those using solid or communal fuels is likely to offer the biggest payback in terms of increased take-up of efficiency measures.